Canadian stocks extended the previous week’s gains, while the Nasdaq set another record on better-than-expected economic data and improved trends in U.S. COVID cases. Business activity for the manufacturing sector expanded in Canada, and the domestic economy added 418,500 jobs in July, beating estimates. Following the three-month rebound, Canada has now recouped 55% of jobs lost due to the pandemic. U.S. unemployment also declined but remains elevated. The continuing, yet moderating, gains in employment show that the recovery in the labour market and the economy is on track, but there is still a long road ahead.
In the wake of COVID, gold prices shimmer but may dull over time.
As the dollar slumped in July and August, gold rallied 17% reaching a record $2,063 before softening a tad to still lofty levels. Behind the gold rally was concern on the part of some investors that a large amount of government stimulus would cause a spike in inflation. While gold has had periods of out-performance when inflation increased unexpectedly, it is also marked by extreme levels of volatility compared with other asset classes. Moreover, gold has other characteristics that limit its value to long-term investors. It does not produce cash flow or dividends, it lacks an industrial usage like commodities, and its price is determined mainly by investor sentiment rather than fundamentals, making gold difficult to value. It’s likely that gold prices will continue to rise in the short run, but gold is less likely to provide the diversification benefit that other asset classes may help to provide investors over the longer term as the economy improves. For these reasons, we recommend maintaining a small allocation (5% or less) in precious metals, including gold.